The Australian Financial Review (AFR) is normally a bastion of sensibility in the Australian economic media landscape. But every so often it publishes an absolute clanger, which is exactly what it did with a recent write-up of “the demise of Australia’s only battery maker”.
According to author Greg Bearup, Australia was “on the cusp” of becoming a battery manufacturing powerhouse, if only “a grant from the Battery Breakthrough Initiative” had come through. Instead, Hunter Valley battery manufacturer Energy Renaissance entered administration:
“[CEO] Craighead says his business has had many cheerleaders. Carloads of federal politicians, including former PM Scott Morrison, NSW Premier Chris Minns, former and current federal MPs, Karen Andrews, Ed Husic, Meryl Swanson, David Pocock, Chris Bowen and Dan Repacholi, along with busloads of NSW MPs and chief government scientists, economic development CEOs, energy and climate change directors, regional development chiefs, strategic planning heads, investment and infrastructure directors, directors of zero-emission buses … and so on.
They’d be photographed at the factory and say this was exactly the sort of thing Australia should be doing. But no one in Canberra has truly championed the cause of manufacturing, Craighead says, and as a result, his factory died a death of a thousand paper cuts.”
The article then continues by quoting a long list of lobbyists and investors in the company, each of whom laments the lack of government support for the sector. For example:
“Dr Jens Goennemann, a former senior executive with Airbus and now the MD of the Advanced Manufacturing Growth Centre, says this timidity is hobbling Australian manufacturing. We need to take risks, he says. The idea that we ‘can’t back winners’ is ludicrous. ‘Would we rather pick losers?’
Energy Renaissance is precisely the sort of manufacturer that Australia should be wholeheartedly supporting, he says, and the fact we are not points to a failure in Australia’s manufacturing policy settings.”
Energy Renaissance not only wanted government grants (“two rounds of government co-investment funding of $770,000” apparently wasn’t enough), but also a ‘buy local’ mandate:
“All his business needed to succeed was some guarantee of forward orders, which would have allowed it to scale up production and would give confidence to potential investors. This, he says, is where the government failed, miserably.
There are billions upon billions of dollars’ worth of government programs that require batteries, like the electrification of government buses, home battery schemes, business battery schemes and defence projects.”
Reading the article I was actually surprised at how reasonable the government behaved. A couple of insiders were quoted:
“Some say the numbers for Energy Renaissance’s battery manufacturing business just didn’t stack up and that there were flaws in its business model. “It can be a great idea, but not a good deal,” says a person from a government agency, who was not authorised to talk. Another says if a government-backed agency had given it money, and it had gone broke, there would be questions about the use of taxpayer funds. ‘Can you imagine that in Senate estimates?’ this person says.”
Those are perfectly valid reasons for not throwing cash at every business that asks for it. The government should be concerned whether it’s getting value for taxpayer money, and whether the company was likely to survive in the long run! Every business can make an argument about why it is special and deserving of taxpayer funds. If the government started supporting all of them, before long half the economy would be locked-up in low- or negative-return activities.
But to a more substantive point, it’s not clear at all that Australia should be manufacturing batteries. We’re decades behind the Chinese, Koreans, Japanese, Europeans, and Americans. They make batteries far more efficiently at scale, so Australian consumers would be better off working where they’re more productive, and importing the batteries they need.
As for the unsubstantiated “vast national security implications”, Energy Renaissance was already importing battery cells from China! Even if it had survived, it would have captured almost none of the high-value manufacturing stages where economies of scale matter most, but rather the lower-value assembly work where Australia’s high wages put us at a severe disadvantage.
But let’s say it was. If uncompetitive battery manufacturing is so important for national security, then subsidise it through the Defence Department’s budget. If Defence thinks it can use those funds more effectively on strategic stockpiling or things like Ghost Shark drones, then so be it.
Finally, it’s important to remember that there are always trade-offs. Every dollar spent subsidising battery manufacturing in Australia must come from somewhere. No industry can expand its share of the economy without some other sector(s) shrinking. By diverting resources to firms like Energy Renaissance, the government draws energy, workers, and capital away from producing other goods and services.
Moreover, the taxes needed to fund such subsidies create deadweight losses, while the spending diverts resources from more productive uses, both of which will make the economy smaller than it would otherwise have been. All of those impacts have national security implications that could easily overwhelm any benefits from domestic battery manufacturing.
It’s a shame that the AFR would uncritically publish such a one-eyed take on what is an important issue, given a Future Made in Australia is a centrepiece of the Albanese government’s economic agenda.